Accounting for

Special Ventures
Goal 2 & 3
Framework of Preparation and Presentation
of Financial Statements
 IFRS Based Financial
Statements
 IAS -1 “ Presentation of Financial
Statements” is a foundation standard that
explains basic accounting and financial
reporting principles and style of
presentation.
 Objective of IAS 1
 The objective of IAS 1 is to
prescribe the basis for
presentation of general purpose
financial statements, to ensure
comparability both with
a) the entity's financial
statements of previous
periods and
b) with the financial statements
of other entities.
 Scope of IAS 1
 Applies to all general purpose financial
statements based on International
Financial Reporting Standards.

 General purpose financial statements are

those intended to serve various external
users who are in a position to require
financial reports tailored to their particular
information needs.
Objective of Financial
Statements
assets

To meet
that cash flows liabilities
objective,
financial
statement
s provide contributions by
and distributions equity
informatio to owners

n about an income and

entity's: expenses, including
gains and losses
 Components of Financial Statements
 A complete set of financial statements should
include:
1) Statement of Financial Position ”at the end of the
period”,
2) Single Statement of Profit or Loss and Other
Comprehensive Income “for the period” (or two
statements: Statement of Profit and Loss and
Statement of Other Comprehensive Income),
3) Statement of changes in equity ”for the period”,
4) Statement of Cash Flows “for the period”, and
5) Notes, comprising a summary of accounting policies
and other explanatory notes.
6) Comparative Information in respect of the preceding
period.
  7) An entity must also present a
statement of financial position as at
the beginning of the earliest
comparative period when:
 an accounting policy is applied retrospectively (company changes its method
of valuing inventory)
 items are restated retrospectively (mistakenly didn’t account for some
expenses in the past); or
 when items are reclassified (debt from “long-term” to “short-term).

IAS 1 requires an entity to present a statement of financial position at

the beginning of the earliest comparative period when: it applies an
accounting policy retrospectively; it makes a retrospective restatement
of items in its financial statements; or when it reclassifies items in its
financial statements (IAS 1.10(f)), and the change has a material effect
on the statement of financial position. In these situations, IAS 1.40A
states that an entity must present, at a minimum, three statements of
financial position, two of each of the other statements and the related
notes. The three statements of financial position include the statement
of financial position as at the current annual period year end, the
statement of financial position as at the previous annual period year
end, and the statement of financial position as at the beginning of the
previous annual period (’the opening balance sheet’, often referred to
as the ‘third balance sheet’).
Example of Point 7
 General Features
Structure and Content of Financial Statements in General Clearly
identify:

• The financial statements must be clearly identified and

distinguished from other information in the same published
document.
• Each financial statement and the notes must be clearly identified
• In addition the following must be displayed prominently:
• name of the reporting entity;
• whether the financial statements are of an individual entity or a
group;
• reporting date;
• presentation currency (as defined in IAS 21); and
• level of rounding used (thousands, millions, etc.)
 General Features
Fair Presentation and Compliance with
IFRS
• The financial statements must "present fairly" the financial
position, financial performance and cash flows of an entity.
• Fair presentation requires the faithful representation of the effects
of transactions, other events, and conditions in accordance with
the definitions and recognition criteria for assets, liabilities,
income and expenses set out in the Framework.
• IAS 1 requires that an entity whose financial statements comply
with IFRSs make an explicit and unreserved statement of such
compliance in the notes.
• Departure from a requirement might be required (extremely
rarely).
General Features
Fair Presentation and
Compliance with IFRSs
• Inappropriate accounting
policies are NOT rectified
either by
• disclosure of the
accounting policies used
or
• by notes or explanatory
material.
General Features
Going Concern

• An entity preparing IFRS financial statements

is presumed to be a going concern.
• If management has significant concerns
about the entity's ability to continue as a
going concern, the uncertainties must be
disclosed.
• If management concludes that the entity is
NOT a going concern, the financial
statements should NOT be prepared on a
going concern basis, in which case IAS 1
requires a series of disclosures.
 General Features
Accrual Basis of Accounting

IAS 1 requires that an entity prepare its financial statements, except for
cash flow information, using the accrual basis of accounting.

Consistency of Presentation

The presentation and classification of items in the financial statements

shall be retained from one period to the next unless a change is justified
either by a change in circumstances or a requirement of a new IFRS.
 Material
 Information is said to be material if omitting it or
misstating it could influence decisions that users
make on the basis of an entity's financial statements.
Put differently, "materiality is an entity-specific aspect
of relevance, based on the size, or magnitude, or
both," of the items to which financial information
relates.
 In determining the relevance of financial information,
regard needs to be given to its materiality.
 A controller who is closing the books for an
accounting period can ignore minor journal entries if
doing so will have an immaterial impact on the
financial statement.
General Features
Materiality and Aggregation
• Preparation of financial statements involves processing a
large number of transactions and aggregating these into
classes according to their nature or function
• The final stage in the process is the presentation line items
on the face of the financial statements
• Guidance
• Each material class of similar items must be presented
separately
• Items of a dissimilar nature or function must be presented
separately unless they are immaterial
• If a line item is not individually material it is aggregated
with other items either in those statements or in the
notes.
 Offsetting
 Offsetting, otherwise known as netting, takes place when
entities present their rights and obligations to each other
as a net amount in their statements of financial position.
 The offsetting requires an entity to offset a financial
asset and financial liability when, and only when, an
entity currently has a legally enforceable right of set-off
and intends either to settle on a net basis or to realise
the financial asset and settle the financial liability
simultaneously.
 provides an exception for "fair value amounts recognized
for derivative instruments and fair value amounts
recognized for the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral (a
payable) arising from derivative instrument(s) recognized
at fair value executed with the same counterparty under
a master netting arrangement.
 General Features
Offsetting
• Assets and liabilities, and income and expenses,
must not be offset unless required or permitted by
IFRS
• IAS 32 (Financial Instruments: Presentation)
contains rules on the offset of financial assets and
financial liabilities which require offset when (and
only when) an entity:
• has a legal right to set off; and
• intends to settle on a net basis; or
• to realise the asset and settle the liability
simultaneously
General Features
Comparative Information
• IAS 1 requires that comparative information
shall be disclosed in respect of the previous
period for all amounts reported in the
financial statements, both face of financial
statements and notes, unless another
Standard requires otherwise.
• If comparative amounts are changed or
reclassified, various disclosures are
required.
General Features
• There is a presumption that financial
statements will be prepared at least
annually.
• When an entity changes the end of
its reporting period (resulting in
Reporting financial statements covering a period
longer or shorter than one year) it must
Period disclose:
• the reason for using a longer or
shorter period, and
• the fact that amounts presented in
the financial statements are not
entirely comparable
 Statement of Financial
Position
An entity must normally present a classified statement of
financial position, separating current and noncurrent assets
and liabilities.
Statement of Financial
Position
Current assets

• are cash; cash equivalent; assets held for

collection, sale, or consumption within the entity's
normal operating cycle; or assets held for trading
within the next 12 months. All other assets are
noncurrent.

Current liabilities

• are those to be settled within the entity's normal

operating cycle or due within 12 months, or those
held for trading, or those for which the entity does
NOT have an unconditional right to defer payment
beyond 12 months. Other liabilities are noncurrent.
Statement of Financial
Position
 IAS 1 does NOT prescribe the format of the
Statement of Financial Position. Assets can be
presented current then noncurrent, or vice
versa, and liabilities and equity can be
presented current then noncurrent then
equity, or vice versa. A net asset
presentation (assets minus liabilities) is
allowed.
 Certain items (“line items”) must be shown
on the face of the statement of financial
position as a minimum:
◦ additional line items, headings and sub-totals are
presented when relevant to an understanding of
financial position;
Statement of Profit or Loss and other
Comprehensive Income

Other Comprehensive
Profit or Loss for that
Income recognized in
period
that period.

Total
Comprehensive
income for a
period
 What is Comprehensive

Income Statement ?
The statement of profit or loss contain items like the revenue, the cost
of sales, the expenses, the finance costs, and the income tax. A
comprehensive income is added to this with items such as a gain or a
loss in revaluation of non-current assets. The revaluation of non-current
asset is seen as the assessment of the unrealized reserves on the
assets. Profit or Loss is Derived and Comprehensive Income is hedged.
other comprehensive income include:

 Gains and losses from derivative instruments.

 Debt security unrealized gains and losses.
 Pension or other retirement plan gains and losses.
 Foreign currency transaction adjustments.
 Available-for-sale securities unrealized gains and losses.

Comprehensive Income Includes Components from non owner /equity

sources.
Statement of Profit or Loss and other
Comprehensive Income
An entity has a choice of presenting:

a single statement of profit or loss and

other comprehensive income or two
statements:

a statement of other
a statement of profit or loss comprehensive income that
displaying components of profit begins with profit or loss and
or loss and displays components of other
comprehensive income
Statement of Profit or Loss and
other Comprehensive Income
Revenue X
Expenses (X)
Share of profit of associate X
Profit before tax X
Income tax expense (X)
Profit from continuing ops X
Loss from discontinued ops (X)
PROFIT FOR THE YEAR X
Other comprehensive income:
AFS assets X The components
of OCI could also
Revaluation (X)
be presented as
OCI before tax X net of tax amounts
Tax relating to OCI (X) rather than gross
OCI after tax X with tax deducted
TOTAL COMPREHENSIVE INCOME X

IAS 1
Statement of Changes in
Equity
IAS 1 requires an entity to present a statement of changes in equity
as a separate component of the financial statements. The statement
must show:

• total comprehensive income for the period, showing separately

amounts attributable to owners of the parent and to non-controlling
interests
• the effects of retrospective application, when applicable, for each
component
• reconciliations between the carrying amounts at the beginning and
the end of the period for each component of equity, separately
disclosing:
• profit or loss,
• each item of other comprehensive income, and
• transactions with owners.
Star Services was formed on 1st June 2017. Following transactions
took place during the first month.

 June 1 Owner Invested Rs 30,000 cash in business.

 June 1 Hired a female receptionist at a salary of Rs 700 per week,
payable monthly.
 June 2 Paid office rent for the month Rs 1,100.
 June 3 Purchased furniture on account from Index Furniture Rs
4,000.
 June 10 Performed Services and billed Mr Khan Rs 5,100.
 June 16 Received Rs 1000 cash advance from Mr Ahmad for
services to be performed.
 June 18 Received Rs 2,100 cash for services performed.
 June 30 Paid female receptionist for the month Rs 2,800 .
 June 30 Paid Rs 2,400 to Index Furniture for accounts payable due.

Required:
a) Journalize the above Transactions.
b) Post the above Transactions into the Ledgers.
c) Prepare the Company’s Trial balance Dated June 30, 2017.